More Credit Card Defaults in States Hit Hard by Foreclosures

Nationwide, credit card defaults soared to record levels in May, with credit card issuers posting more delinquencies in states hardest hit by foreclosures such as California and Florida, according to regulatory filings.

The country’s largest bank, Bank of America Corp., said that its default rate in May has soared to 12.5 percent, a significant increase from its 10.47 percent default rate in April. This rate represents consumer loans that the banking firm no longer expects to get paid.

Banking analysts said that Bank of America has soaring credit card delinquency rates because it had launched aggressive expansion efforts during the growth years and accepted many subprime borrowers, the same segment that had the most number of foreclosures in the first months of the housing crisis.

Meanwhile, American Express Co., the card issuer that comprises almost 25 percent of all credit card sales in the country, reported its default rate increased to 10.4 percent in May, compared to its 9.9 percent level in April.

American Express also reported that it holds large numbers of credit card accounts in Florida and California, which are among the states with the biggest numbers of foreclosures in May and in the previous months.

Citigroup, the largest provider of MasterCard credit cards, reported that its credit card chargeoffs increased in May to 10.5 percent from its 10.21 percent level in April.

Walter Todd, an executive at Greenwood Capital Associates, said that credit chargeoffs reached record levels in May across the credit card industry.

Based on the nation’s credit card history, credit card defaults typically follow increases in the unemployment rate. In May, the nationwide unemployment rate jumped to 9.4 percent, the highest level it has reached in 26 years. Economists expect the rate to reach 10 percent by December this year.

Banking analysts contend that if credit card defaults exceed the 10 percent level this year, consumer loan losses by banks could surpass $70 billion this year.

Financial analysts said that credit quality will continue to be a concern to the credit card industry as foreclosures and the unemployment rate continue to rise.

JPMorgan Chase, the second largest bank and biggest provider of Visa credit cards, reported that its default rate increased in May to 8.36 percent from its 8.07 percent level in April. The investment bank, however, remains the best performing credit card issuer in the country despite absorbing part of the effects of foreclosures.

Related Posts:

• Mortgage Defaults Up, Repossessed Houses to Rise
• Orange County Foreclosures Fall but Defaults Rise
• Drop in Charlotte Home Sales Slowed Amid Foreclosures Homes
• No Down Payment Led to Large Foreclosure Home Numbers
• Maine Bank Report Shows Rise in Foreclosed Properties